Fixing Medicare

May 15, 2009 7:46 pm

Although Social Security tends to get most of the attention, the financial solvency of Medicare is a much more pressing problem. At the same time, it is one that can be solved without huge tax increases or benefit cuts, but only if Congress is serious about fixing it.

The trustees who oversee Medicare, in their annual report, warned that the program’s hospital insurance trust fund will run out of money in 2017. The fund pays hospital bills for the country’s seniors. This year’s report moves the insolvency date ahead two years, largely because of losses due to the current recession. The trustees said the Social Security Trust Fund will run out of money in 2037, four years earlier than predicted.

Although the years have changed, the financial instability of the programs is not news. Faced with similar projections for years, lawmakers have done … not much. This year may be different because President Obama has made improving health care and expanding insurance coverage priorities of his administration.

There are many ways to improve Medicare’s financial footing, including the reforms the president is pushing. A first step is to reduce the growth in health care spending. The trustees predicted that average Medicare spending will increase from $11,000 per enrollee last year to $17,000 in 2018. This increased spending, coupled with an expected 30 percent increase in Medicare beneficiaries by 2018 add up to financial disaster for the program. Reining in costs now will go a long way toward keeping the program solvent.

Roughly 20 percent of Medicare enrollees are covered through private insurance. This coverage costs about 15 percent more than those covered under regular Medicare. In 2007, the U.S. House passed a measure to pay private insurers the same as Medicare itself pays. The Senate did not act on the measure. Other small reforms have met similar fates.

This work is complicated by the fact that President Obama, echoing many Republican lawmakers, says that expanded health care coverage should not be paid for through deficit spending. Rather, savings from reduced health care expenses will be used to increase coverage. This is the right ap-proach, but one that will require cooperation from many competing interests, including doctors, hospitals, insurance companies and patients.

Also this week, insurance, pharmaceutical and other health industry officials pledged to work to cut costs. While this is encouraging, it remains to be seen how strong this commitment remains.

If lawmakers don’t agree on substantial changes and costs are not reduced, Medicare’s financial situation is guaranteed to worsen. The longer they wait, the more likely it becomes that tax increases and benefit reductions will be necessary to keep the program afloat.